Iceland's Central Bank Cuts Key Policy Rate Amid Easing Inflation

Iceland's central bank lowered its key policy interest rate by 25 basis points to 9.0%, citing eased inflation. Despite persistent high prices and domestic demand, inflation expectations remain above target. The broader economy is also contending with natural disruptions such as earthquakes and volcanic eruptions.

Iceland's central bank on Wednesday cut its key policy interest rate by 25 basis points to 9.0%, citing an easing of inflation.

"Although certain one-off items weigh heavily, the scope and frequency of price increases have tapered off," the Sedlabanki said in a statement. The bank, which targets inflation at 2.5%, had kept the rate unchanged for the past year after raising it gradually from a low of 0.75% in 2021.

Inflation recently stood at 5.4% year-on-year as of September. "Economic activity has continued to ease in tandem with the tighter monetary stance ... Persistent inflation, inflation expectations above target, and strong domestic demand call for caution," it stated.

The economy also faces uncertainties from ongoing earthquakes and volcanic eruptions. Globally, central banks like the European Central Bank, the U.S. Federal Reserve, the Bank of England, and Sweden's Riksbank have initiated monetary easing as inflation slows worldwide.

(With inputs from agencies.)